You may already be aware of it, but the housing market has been incredibly unforgiving as of late, and the average American tends to have a hard time finding a forever home at an acceptable price. 

On top of this, even if you do have the money, the abundance of options makes it practically impossible to choose which one best suits your needs. 

However, a lot of people tend to overlook the fact that foreclosed properties are a thing, and with their affordable selling price, they may just end up being the housing option you were looking for. 

It’s important to remember that buying a foreclosure does come with its own set of downsides, one of the major ones being that you won’t know what shape the property is in until you buy it. 

By following through with the purchase, you’re practically putting yourself at risk of being forced to maintain a property that is near-impossible to restore to its former glory. 

A bunch of other things are attached to buying a foreclosure, and this article will go over some of the more complex questions that pop up when it comes to buying one.

What you should know

Essentially, a foreclosure happens when the borrower, that is, the former property owner, can’t pay back the loan they’ve taken out, which is followed by the bank or lender seizing the property. 

Once the original owner is evicted, the bank/lender will list the property on the market and attempt to sell it, usually at a much lower price than its market value, as it will help them cut their losses. 

Apart from this, you may also find banks listing these homes at auctions, although you should keep in mind that the properties in question are usually sold in not the best shape. 

This is mainly due to the fact that the borrower didn’t have enough funds to actually pay for the property’s maintenance during their stay. 

Why is it cheaper

The selling point of foreclosed properties is their low price, and while it can be tempting for the lower-income American, you must remember that the low price is there for a reason. 

At times, all of the prices related to the home come at a reduced cost, meaning that the down payment, interest rate, and closing costs are all lower than the average. 

Another reason why these properties are popular is that the potential buyers are aware of the dire financial situation the current owners are in, as properties going through a pre-foreclosure signal that the seller is desperate to get rid of the property. 

As a homebuyer, this puts you at an advantage, as you’ll find it easier to leverage the price discussion in your favor. 

On the other hand, if the property has already been seized, it may sell even faster, seeing as there are few people actually willing to go through the process of renovating the property. 

Foreclosures are sold as is, and the buyer needs to consider the fact that any and all damages to the property will have to be repaired by them. 

Find a foreclosure

If you do actually show interest in buying a foreclosed property, your search may not be as easy as you thought, as finding foreclosed homes requires some additional research. 

MLS websites are the best place to start, but there’s no guarantee you’ll find any suitable properties, and even if you do find a property, you should first take note of its foreclosure state. 

Oftentimes, this is found in the property’s description, and if you need some extra help, it’s recommended to hire a local real estate agent to assist you in finding the foreclosure opportunities in your area and price range. 

When these homes are listed, they’re sorted into 5 different types based on the progress of the foreclosure as well as the type of sale the lender/bank that seized the property opted for. 

Different types of foreclosures

Pre-foreclosures are homes that have only entered the process and are usually sold by the actual owner trying to get rid of the property in order to settle their debt with the lender. 

This is highly beneficial as you’ll find that buying these homes is much easier due to the seller is eager to finalize the purchase. 

Short sales are similar to the standard process of buying a property, with the only difference being some legal terms in the home buying contract itself, as the home is being listed for a lower price due to the lender receiving an amount lower than the mortgage. 

Finally, if you’re not too eager on auctioning for a home, you may want to buy a property directly from the bank, which saves you all the trouble of going to auctions without a successful purchase. 

However, this does mean that you’re buying a property in its current condition, which won’t be presented to you, so proceed with caution.

The downsides

Of course, every good opportunity has its drawbacks, and buying a foreclosed property is no different, as most of the properties have some amount of damage they’ve sustained, hidden costs, and a highly competitive market, with an excruciatingly slow purchasing process as the cherry on top. 

A lot of people jump the gun when they hear that foreclosed properties come at a much lower price, not knowing what they’re getting themselves into, and we hope that this article helped clarify some of the misconceptions you may have had regarding foreclosures.